Pipeline plans suggest coming 'tsunami' of crude exports

Export facilities along the Texas Gulf Coast, like these storage tanks at the Port of Corpus Christi, could be overwhelmed as new pipelines come online in late 2019 and into 2021 and send crude from the Permian Basin and Eagle Ford gushing to the export market.

Export facilities along the Texas Gulf Coast, like these storage tanks at the Port of Corpus Christi, could be overwhelmed as new pipelines come online in late 2019 and into 2021 and send crude from the Permian

Export facilities along the Texas Gulf Coast, like these storage tanks at the Port of Corpus Christi, could be overwhelmed as new pipelines come online in late 2019 and into 2021 and send crude from the Permian Basin and Eagle Ford gushing to the export market.

Export facilities along the Texas Gulf Coast, like these storage tanks at the Port of Corpus Christi, could be overwhelmed as new pipelines come online in late 2019 and into 2021 and send crude from the Permian

Permian Basin oil and natural gas producers are awaiting the arrival of more takeaway capacity as pipeline projects begin to come online late in 2019.

If all of the 15 new pipeline projects announced this year come to completion, that's an estimated 7.7 million barrels of new crude headed to the Gulf Coast, according to Sandy Fielden, director, oil and products research at Morningstar. The majority of that would be light shale crude destined for the export market.

"The midstream plans imply a more than fourfold increase in export volumes from 1.7 million barrels a day today to a tsunami somewhere north of 8 million barrels a day in the years beyond 2021," Fielden writes in his recent report, "Pipeline Plans Suggest Tsunami of Crude Exports."

Fielden told the Reporter-Telegram by email that the exports would head to India and China to start with, and also Europe. "Brent is still $9 over West Texas Intermediate, making WTI a bargain," he said.

That surge in production seeking a home in the export market raises the threat of dock congestion, Fielden said.

The expected surge in exports has set off a scramble to expand dock capacity, with five offshore facilities to accommodate the Very Large Crude Carriers capable of carrying up to 2 million barrels of crude, announced along the Texas Gulf Coast. While those projects have been praised for their economic contributions and job creation, they also have been met with opposition, including from nearby residents. The Port of Corpus Christi is opposing Trafigura's Texas Gulf Terminal project.

These controversies "slow export dock development, but they won't stop exports," Fielden said. "We're doing 3 million barrels a day of exports a day already with no problems."

But, as he said in his report, "the threat of dock congestion only arises if all the proposed pipelines are built and if they run full. That probability is low, at least in the next three years."

He pointed to a forecast from the U.S. Energy Information Administration that U.S. production will average 10.9 million barrels a day this year and 12.1 million barrels a day next year, implying a slowdown from this year's surge of 1.5 million barrels a day over 2017 levels to 1.2 million barrels growth in 2019. Even if domestic production grows by that same 1.2 million barrels a day in 2020 and 2021, the net increase between 2018 and 2021 would be 3.6 million barrels, well within that 7.7 million barrel planned pipeline capacity.

He said the mismatch between the volume of planned pipeline projects and crude growth over the next three years suggests a short-term infrastructure overbuild, and there will be consolidation among many of the projects before they're built.

"It makes sense to build long-term, but it creates its own problems if the pipes are empty," he said.

Asked about the recent drop in oil prices amid concerns about oversupply and a weakening global economy, Fielden said the lower prices eventually will slow output. "Back to the 2015 situation – not good," he said.

Still, he concluded in his report, "The history of shale expansion has taught us that the most optimistic forecasts frequently appear in the rearview mirror."

Mella McEwen is the Oil Editor and covers the latest business and energy news. You can read more from her here. |mmcewen@mrt.com|